State employees, retirees will pay for health insurance trust sweeps

Arizona state employees will pay higher premiums and copays for health insurance next year, and some lawmakers say funding sweeps approved by the Republican-controlled state Legislature are partly to blame.

Employees and state retirees were notified September 18 that their insurance premiums will increase effective January 1, the first hike in employee’s insurance payments since 2011, according to a memo from the Arizona Department of Administration. Copays are also increasing for some services, while chiropractic care and certain therapy services will now be classified as specialist care, requiring co-pay hikes of $25 more per visit.

Premium hikes will cost an average of $151.32 more annually for state employees, an expense ADOA officials say is necessary given “skyrocketing” health care costs that have endangered the solvency of a trust fund that pays the costs of employee’s medical and dental claims, according to the memo.

The Joint Legislative Budget Committee, which was briefed on September 6 of the department’s decision to raise insurance costs, opposes the plan, as some argued that funding sweeps are truly to blame for the Health Insurance Trust Fund’s financial woes.

Since 2011, the Arizona Legislature has approved budgets that swept roughly $275 million from the trust fund under then-Gov. Jan Brewer and the first two years of Gov. Doug Ducey’s administration, according to legislative budget analysts.

That would have, at least for now, more than covered projected deficits for the trust fund, Rep. Mark Cardenas said.

Rep. Mark Cardenas (D-Phoenix)

“The employee’s health insurance fund has been the Legislature’s personal piggy bank for the last eight years,” the Phoenix Democrat said.

The most recent sweep, $78.9 million approved in Ducey’s second year in office, was the largest of six consecutive years of dollars swept from the trust fund to the state’s general fund to help balance the budget.

The Health Insurance Trust Fund is financed by insurance premiums paid by state employees and various state agencies, which as employers cover 90 percent of state workers’ health care costs.

Sweeping those funds to cover costs elsewhere in the state budget has now come at the expense of state’s 60,000 insured employees and retirees, said Sen. David Farnsworth, R-Mesa.

The adjustment for current employees ranges from a low of $48.10 to $301.08 annually.

The cost to retirees is even higher, since they pay 100 percent of their premiums. For instance, for those not on Medicare, premiums will jump from a low of $711.60 annually for a retiree-only plan, while family plans will increase as much as $2,636.40 annually.

Sen. David Farnsworth (R-Mesa)

“When the Legislature sweeps the fund over and over again, and then we come back and we have a crisis, we refund the fund on the backs of state employees,” Farnsworth said. “I don’t think that’s right.”

As a Republican lawmaker, Farnsworth is responsible for voting for some of those funding sweeps since he began serving in the Senate in 2013. Rep. Don Shooter, co-chair of the Joint Legislative Budget Committee, acknowledged that wounds to the Health Insurance Trust Fund are in part inflicted by lawmakers, and in the future, lawmakers must cease sweeping those funds.

“We kind’ve dug a hole, which now we’re living with,” the Yuma Republican said.

However, Shooter said he doesn’t regret voting for budgets that included those sweeps. While “it doesn’t take a genius” to realize that six consecutive years of funding sweeps wasn’t sustainable, Shooter said that budgets are never perfect, and the sweeps were necessary to secure budget deals in the past.

Ducey Spokesman Daniel Scarpinato said that the sweeps weren’t done lightly, and that the money was put to good use.

“The state was in a real bind during the recession, and continued to be when we took office in 2015,” Scarpinato said. “There were some difficult choices made. I think it was a good thing that we limited layoffs and drastic cuts, or more drastic cuts, to certain areas that would have really had a detrimental impact, (rather) than to just let cash sit around.”

State lawmakers already acknowledged problems with the Health Insurance Trust Fund earlier this year, when they approved a $75 million cash infusion as part of the fiscal year 2018 budget. But that was not enough, and now the only way to make the Health Insurance Trust Fund whole again is to stop future funding sweeps and to raise premiums, Shooter said.

Rep. Charlene Fernandez (D- Yuma)

Rep. Charlene Fernandez, D- Yuma, said hiking premiums wasn’t the only option. The Legislature could have continued to appropriate money to support the trust fund, and found other areas in the budget – Democrats have long proposed taking a closer look at the state’s multitude of tax credits, and letting some expire – to pay for it.

That option would have held state employees harmless from the Legislature’s errors, she said.

Memos to state employees and retirees note some benefits to the adjustments to insurance plans, including making preventative care free – under current plans, employees still paid a copay for routine checkups. The state has also sought to make the cost of care competitive compared to other government entities and the private sector, Scarpinato said. In years when the trust fund was considered healthy enough to sweep from, employees were sometimes given holidays from paying premiums, and in 2016, premiums were lowered for some employees and retirees he said.

“I think you’ve seen a real effort by the state, and not just under our administration, but really all through the recession, of really avoiding any increases in premiums for our employees, and in fact at one point in time actually lowering premiums,” Scarpinato said. “That is, I think, unheard of to anyone … who doesn’t work in state government.”

ADOA officials have no say over the past sweeps of the Health Insurance Trust Fund by lawmakers. In those years, the fund did have a healthy balance, well above best practices and industry standards, according to Megan Rose, an agency spokeswoman.

In recent years, however, state officials have underestimated the rising costs of medical care, she said, an indication of how much those costs have risen.

Now, based on those same industry standards, “with the reserve that we have and we keep, and the premiums we collect, we are not able to pay the bills,” Rose said.

In a budget request submitted this month to the Governor’s Office, officials wrote that the fund would have a deficit of $219.3 million in 2019 if no changes are made to the premiums paid by employees and state agencies. With the adjustments in premiums and copays, that has been trimmed to a projected $55.6 million deficit. Rose said premiums are designed to cover all the expenses from medical and dental claims of the state’s employees and retirees. No more, no less.

“The goal of the Health Insurance Trust fund is to collect what we spend. It’s not meant to be some type of savings account,” she said.